Despite a rocky end to the summer, Ethereum (ETH -1.35%) is still up 37% for the year. But it has largely disappointed crypto investors who were expecting it to skyrocket in value after a key event this time last year.
After surging past the $2,000 mark in mid-April, Ethereum has had a difficult time regaining the $2,000 level over the past four months, and bullish sentiment around the digital currency is clearly fading.
Can Ethereum mount another rally to hit the $3,000 level? There are three key factors to consider. If it can deliver on all three, then the chances for a bull market rally become much higher. Let's take a closer look.
1. Remain the market leader
The good news is that Ethereum continues to be the market leader in just about every niche of the blockchain and crypto world.
Take non-fungible tokens (NFTs), for example. This is the one area where Ethereum first burst into prominence for many crypto investors, thanks to the emergence of best-selling NFT collections such as the Bored Ape Yacht Club and CryptoPunks.
Based on current NFT sales data, these two collections continue to remain among the most valuable, and Ethereum continues to remain the No. 1 player in the NFT world on the basis of overall sales volume.
Image source: Getty Images.
It's much the same story in decentralized finance (DeFi), another key niche of the blockchain world. Based on the latest data for total value locked (TVL), the leading metric used to assess overall DeFi strength, Ethereum remains No. 1 in DeFi as well.
In fact, it accounts for an astounding 57% of all TVL in the blockchain world. Yes, new entrants such as Base, the new blockchain from Coinbase Global, have been getting a lot of buzz of late, but no other blockchain even comes close to Ethereum.
2. Deliver on a new strategic plan
That being said, I'm not expecting Ethereum to rest on its laurels. Yes, the change to a proof-of-stake model, known colloquially as "The Merge," was by all accounts a technical tour de force, and yes, the crypto remains the market leader in many categories. But there are plenty of top-tier rivals nipping at its heels. So there is a need to continue to produce innovations and new market opportunities.
That's why I've been keeping a close eye on Ethereum's post-Merge road map, which can be thought of as its long-term strategic plan. It suggests that the crypto is hardly finished when it comes to updating, improving, and expanding the range of functionality of its blockchain.
In fact, co-founder Vitalik Buterin has outlined five new stages of development that outline upcoming technical changes to the Ethereum blockchain and what they will mean in terms of future performance.
For example, one of the next goals is to boost processing speeds on the blockchain to 100,000 transactions per second. That could create new opportunities to make it a world-class payments network, on par with today's top credit-card processing networks.
3. Stay clear of regulators
Lastly, there's the issue of the ongoing regulatory crackdown on cryptocurrency. In February, the Securities and Exchange Commission (SEC) started looking into crypto staking, which is vital to any proof-of-stake blockchain such as Ethereum.
Then, in June, the SEC spooked the markets with lawsuits filed against top cryptocurrency exchanges Coinbase Global and Binance. And the SEC continues to hunt for cryptos that it believes to be unregistered securities.
Through it all, Ethereum has remained relatively unscathed. The problem, though, is that regulatory risk is never going to go away completely. SEC head Gary Gensler has never specifically targeted Ethereum, but he has sent plenty of signals that he might want to take a closer look at staking on the platform.
The long-term outlook
As long as Ethereum retains its leadership in key markets, delivers on its strategic plan, and remains free and clear of crypto's regulatory crackdown, I'm highly confident that it has the potential to reach the $3,000 mark.
That might sound like an aggressive goal, given that it represents a nearly 80% hike from today's price, but just keep in mind that Ethereum's all-time high from just two years ago is $4,891.70. For now, I'm both short-term and long-term bullish on Ethereum's prospects.
